Five Questions To Ask Before Buying Linked Benefit Long-Term Care Insurance

The overwhelming majority of Americans purchasing long-term care protection today are buying what’s typically called a linked-benefit insurance policy.  The word ‘linked’ or ‘combo’ refers to the fact that these are generally life insurance policies that do double duty. Long-term care services are vital and affirming for many, but adult day care that offers support for daily living is expensive. This is why insurance is required and often provided by employers at little or no cost to their teams.

If qualifying long-term care is needed, the policy will pay benefits.  If there is no need for care services, or the need is less than the policy’s maximum value, they pay a death benefit to the named beneficiary.

But that’s where the similarity ends and the contractual small print takes over.  That small print will determine what you pay for coverage.  More importantly, it will define how much you are entitled to in future benefits.  It’s the small print that matters most and unfortunately few of us ever read it.

To assist in making you a smarter consumer, here are five questions to ask before you buy any linked-benefit insurance coverage.

1.  Linked Benefit Costs Can Vary; Have You Compared Costs?

Each insurer offering linked-benefit long-term care policies establishes its own pricing and benefit formulas. According to the 2022 Linked-Benefit Long-Term Care Price Index a 55-year-old male could pay $5,235 yearly for maximum long-term care of $568,800 at age 85. Conducted by the American Association for Long-Term Care Insurance (AALTCI), the analysis found that similar plan provisions yielded a cost of nearly $1,000 more annually. Because long-term care costs (nursing home care, assisted living, home care, etc.) are so high, individual policies are often needed to cover just this portion of your care.

Some insurance companies accept lifetime premiums where a smaller amount is paid annually until one reaches a certain age, goes on a claim or dies.  Others will offer various schedules such as 10-pay, where larger premiums are paid for 10 years.  After that, no premiums are paid.  And, some will offer single pay, where the full charge for the coverage is paid all at once.  Flexibility to meet your financial situation can be of significant value.

2.  What Is My Maximum Long-Term Care Benefit?

If you need long-term care starting at age 85, which of these would you prefer? A life insurance policy where the maximum benefit available is $568,800 or one where the maximum is $753,627?  

What if the cost for either is virtually the same?  Long-term care costs will rise over time, and your medical condition might necessitate even more care.

Benefit formulas used to determine your potential linked-benefit LTC coverage are spelled out by the contractual language. Ask the advisor or agent to provide you with a printed illustration showing all values and benefits that are guaranteed by the policy. In particular, ask to see the maximum long-term care benefit value at ages 85, 90 and 95. These represent the ages when you are most likely to start needing care.

3.  How Much Is The Policy’s Death Benefit?

Few people buy linked-benefit long-term care because they want or need the life insurance death benefit. Once again, assuming costs for coverage are relatively equal, which of these two plans would you prefer?

According to the AALTCI price analysis, one plan offers a death benefit of $104,000 at age 100. Another will leave your beneficiaries with $274,405.

Failing to compare plans including the potential amount of death benefit can short-change your beneficiaries. Again, all these details will be spelled out in the illustration you want to ask for and keep along with your policy contract.

4.  How Are Benefits Paid? Can Family Members Provide Care?

Some insurance companies use a ‘reimbursement’ model for paying claims. Generally, this involves gathering paid receipts and submitting them for reimbursement.  When you need care, who will be available to undertake this for you? What if you are suffering from a cognitive condition, the number-one cause of long-term care claims? Beyond custodial care, personal care services and skilled care services, you need the specific medical care required for your condition.

Other insurance companies offer a ‘cash indemnity’ model.  Simply explained, once your claim is approved, a monthly benefit is paid.  Obviously, simplicity and convenience are key benefits. An overlooked benefit of the cash model can be the ability to pay family members or friends who are providing care services.

5.  What Is The Policy’s Residual Death Benefit?

Who wouldn’t want to have their cake and eat it too? In this case, that means using up the maximum long-term care benefit but still having some available life insurance benefits to leave to loved ones.

Ask about the hybrid linked-benefit long-term care plan’s ‘residual death benefit’. This is one of the many, often overlooked features that are well worth comparing before you sign on the dotted line.

Working With A Linked-Benefit Long-Term Care Specialist Can Pay Off

These five questions merely scratch the surface of what you want to ask. Increasingly consumers are being shown policies that may look and feel like linked-benefit products. But, come claim time many years from now, they may not provide the benefit coverage you had anticipated.

For that reason, experts recommend speaking to more than one advisor or seeking a second opinion from an experienced linked-benefit insurance agent who is familiar with products and can compare multiple companies. You can connect with them via the American Association for Long-Term Care Insurance which recently established a resource center containing valuable information on the topic.

Ask for everything in writing. Insurance contracts are legally binding agreements and information communicated verbally really have no standing. Asking questions is the most important step toward being a savvy buyer.